The US Federal Reserve (Fed) announced on Monday the initiation of an internal probe into the Silicon Valley Bank (SVB) failure, which Michael S. Barr, the Vice Chair for Supervision at the central bank, will lead.

Fed Initiates Internal Probe Over SVB Collapse

According to the official publication from 13 March 2023, Bar and his team will review how SVB was regulated and supervised by Fed before its collapse in search of potential negligence that could explain the reasons for the sudden bankruptcy of the institution. The final results will be released to the public by 1 May 2023.

"The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve. We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience," Jerome H. Powell, the Chairman of the Federal Reserve Board, commented.

On 10 March, the California Department of Financial Protection and Innovation took the decision to close down SVB without providing any clear explanation for the abrupt action. According to reports, SVB had been struggling with severe liquidity issues and was teetering on the brink of collapse. This was attributed to significant losses incurred on government bond investments as well as deposit withdrawals by worried customers, which compounded the bank's financial woes.

The Californian authority's decision triggered a market panic and led to a dynamic fall of bank shares around the world.

Credit Suisse Tests Record-Lows, First Republic Bank Slumps over 60%

The collapse of SVB triggered a strong response from the cryptocurrency community due to the capital links of large companies in the industry with the bank. Circle, a stablecoin USDC issuer, allocated 8% of its USDC reserves, equivalent to $3.3 billion, to Silicon Valley Bank. This caused initial panic and a depreciation of the stablecoin against the US dollar. However, most of the panic subsided over the weekend and Bitcoin (BTC) rebounded quickly from multi-month lows to near-month highs.

Nonetheless, uncertainty continues to grip traditional stock exchanges, particularly in the banking sector. According to a report by Finance Magnates, Credit Suisse, the troubled banking giant, saw its shares drop to historic lows in response to news of SVB's collapse.

Shares in Credit Suisse (SIX: CSGN) started this week at EUR 2.5 but were down around 9.5%, to EUR 2.15 after the closing bell on Monday, touching an all-time low. The lender has lost approximately 20% since the beginning of the year after its shares plummeted almost 70% in 2022.

However, the stocks of the regional lender, First Republic Bank tanked the most, plunging over 60% on Monday, accounting for the largest share loss. Several other lenders saw significant drops in their stock prices as well. For instance, Zions Bancorporation's shares fell by 25% to $30, while Charles Schwab's dropped by 11% to $52, and Bank of America's decreased by 3% to $29, among others. The volatile trading activity led to many of these stocks being halted multiple times throughout the day.

On Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and FIDC Chairman Martin Gruenberg said in a joint statement that the depositors' claims would be fully protected. The Fed convened a special meeting to address the market panic and issued a notice to launch an internal investigation.